CSS Button No Image Css3Menu.com

Baseball Prospectus home
  
  
Click here to log in Click here for forgotten password Click here to subscribe

Happy Thanksgiving! Regularly Scheduled Articles Will Resume Monday, December 1

<< Previous Article
Avoiding Dissonance (04/25)
Next Article >>
The Daily Prospectus: ... (04/29)

April 26, 2002

Friday Afternoon with Bud

Truth From Fiction

by Doug Pappas

Something about this column struck a nerve at Major League Baseball. Two days after it was posted, Rich Levin, MLB's Senior Vice President-Public Relations, called the SABR office to get my phone number. Two hours later, an efficient-sounding woman left a voice mail in which she said that Commissioner Bud Selig wanted to speak to me. She invited me to call him back at his office in Milwaukee.

What the heck, it was a slow day at work. I grabbed a pad and pen.

When I called back, my experience was a lot like Rob Neyer's. I felt like a student being lectured by an insecure professor for disagreeing with the thesis of his latest book. The commissioner explained that while he's thick-skinned and had grown accustomed to invective, I was simply wrong about numerous key facts. He spent the next 40 minutes itemizing them, starting at the top of the article and working his way down.

On some issues, we were simply talking past one another. With respect to his testimony before the House of Representatives, the commissioner insisted "we did very well in Washington" because the House committee had voted 27-9 against repealing MLB's antitrust exemption, and the Senate didn't bother to vote. If success is defined as "not provoking your audience to change the laws immediately to spite you," Selig's appearance was indeed a success.

That wasn't what I meant. Selig was there to defend MLB's claim to have lost $519 million in 2001, and in that respect, he failed miserably. After Selig's testimony, Chris Isidore of CNN/Money said MLB's numbers "raised as many questions than they answered." The Associated Press reported that some "congressmen appeared dumbfounded by Selig's vague answers," and the New York Daily News said that "the reaction was so overwhelmingly negative that by Friday night the owners were on the phone with the union to discuss ways to delay contraction for at least a year." Months later, Forbes' disagreement with Selig's numbers prompted another tantrum in which MLB called the Forbes analysis "the type of journalism one expects from a supermarket tabloid."

But for the commissioner, this near-total contempt for his explanations didn't matter, so long as MLB's precious antitrust exemption survived. He asked why, if his appearance had been as bad as I claimed, the vote had been so favorable to MLB. He didn't wait to hear my response that most congressmen probably didn't consider the issue important enough to act on.

Continuing through my column, he insisted that Paul Beeston wasn't forced out and remains one of his dearest friends. He didn't address whether, as has been reported, Beeston left in frustration because Selig had undercut him on labor matters.

Selig was technically correct when he said that he did not call a special owners' meeting to award himself a new contract. As Selig insisted, this meeting was called by the owners, intended as the "second contraction meeting." Before the meeting, though, the Minnesota courts blocked contraction and the other issues on the agenda were resolved. Selig nonetheless asked the owners to act immediately on the one remaining issue, extending his own contract by three years although it wasn't due to expire until December 31, 2003.

According to Selig, the owners are briefed regularly on labor issues and none have complained to him about being excluded from the process. With all due respect, "briefing" isn't the same as reasoned discussion, and asking a man empowered to fine dissenters $1 million whether the owners back him is like quizzing Kim Jong Il about his popularity with the North Korean people.

Selig also noted that MLB's "gag rule" wasn't new, but had been in place for 18 months. True, but so what? When I asked whether similar rules in previous negotiations had barred direct owner-to-owner communication on labor issues, Selig ducked the question and instead pressed for my source. That was easy: Murray Chass's March 3 column in the New York Times, which quoted at length from a memo sent by MLB lawyer Rob Manfred to club owners, presidents, and general managers. This memo concludes, "Finally the commissioner has asked me to remind you that the policy prohibiting club communications with the union, club-to-club communications on labor and public comments on labor remain in place. The fine for violation of this policy is $1 million."

Selig explained that the discretionary fund I called a "slush fund" had been devised by Paul Beeston, and that the MLBPA had accepted it in principle. He said that it's intended to provide flexibility, a way to reward low-revenue clubs for their efforts. When I asked whether there were objective standards for the distribution of that money, I didn't get a straight answer.

A discretionary fund could be a useful component of MLB's revenue-sharing program if used to provide additional incentives for low-revenue clubs to spend money on players. For example, revenue-sharing recipients could receive an extra $200,000 for each one-game improvement over their previous year's record, with any money left over thrown back into the general revenue-sharing kitty. But without objective standards for distributing it, the "discretionary fund" is only as good as the integrity of its administrator--in this case, an administrator who violated an MLB rule by borrowing money from another owner without first disclosing he was doing so, and who actually owns one of the likely revenue-sharing recipients.

Selig was on a roll. A couple of times during this harangue, I could hear him tell his secretary "I'll call him back." In his favor, when I was interrupted by someone bringing me a memo, he very politely asked if I had to go and suggested I call back another time if it was more convenient.

What really angered him was my description of the 60/40 rule--the rule that limits the amount of debt a team can carry, based on arbitrary definitions of "debt" and "franchise value." The Commissioner said that while he had suspended the rule after the 1994-95 strike, "clubs have been begging me to enforce 60/40." He didn't explain why he had resisted these entreaties for six years after the strike ended, then decided to enforce the rule the very year his debt-riddled Brewers received a revenue spike from their new park.

Selig explained that by valuing clubs at twice their annual revenue, the revised 60/40 rule is actually more generous than the old rule, which had valued every club at $70 million. He didn't say when the $70 million figure had been adopted, but since the Orioles sold for $173 million in 1993, it was woefully out of date even before the strike.

Selig insisted that liabilities under the 60/40 rule have always included the value of salaries for future years, and any suggestion to the contrary was "just bullshit."

Oh, really? That's not what the historical record shows.

The 60/40 rule was first applied to all teams in 1983. That year, Warner Communications paid $10 million for 48% of the Pirates and Avron Fogelman paid $10 million for 49% of the Royals, suggesting that in 1983 a typical small-market franchise was worth about $20 million. While reliable contract information for the mid-1980s is scarce, contract summaries in the annual Sporting News Guides suggest that eight members of the 1983 Yankees, including Don Baylor, Ken Griffey, Ron Guidry, Steve Kemp, John Montefusco, Bob Shirley, Dave Winfield, and Butch Wynegar, were owed at least $26 million in salaries for seasons after 1983. The Yankees' "debt" for future salaries thus exceeded the total value of the Pirates or Royals. Yet even though the 60/40 rule assigned the same value to every club, and even though other owners complained incessantly about the Yankees' free-spending ways, no one at the time contended that their free-agent signings violated the 60/40 rule.

More recently, the Cleveland Indians built their 1990s powerhouse by locking up their young talent with long-term guaranteed contracts. In 1993, the 60/40 rule valued the Indians at $70 million. Assuming they had no other debt, if long-term contracts counted toward the debt limit, the Tribe could have committed no more than $28 million for guaranteed contracts extending beyond the 1993 season.

In fact, the 1993 Indians had more than $40 million in guaranteed future contracts. These contracts, verified against the official "Joint Exhibit 1" summary of player contracts used by MLB and the MLBPA in salary arbitrations, included:

  • Sandy Alomar Jr.: owed $2.2 million for 1994
  • Carlos Baerga: $19.7 million for 1994-98 ($2.2 million in 1994, $3.5 million in 1995, $4,666,667 in 1996 and 1997, $4,666,666 in 1998)
  • Albert Belle: $6.7 million for 1994-95 ($2.5 million in 1994, $4.2 million in 1995)
  • Felix Fermin: $1 million for 1994
  • Kenny Lofton: $5.8 million for 1994-96 ($850,000 in 1994, $1,850,000 in 1995, $3.1 million in 1996)
  • Candy Maldonado: $1,550,000 for 1994
  • Charles Nagy: $1,200,000 for 1994
  • Eric Plunk: $575,000 for 1994
  • Paul Sorrento: $1.7 million for 1994-95 ($675,000 in 1994, $1,075,000 in 1995)

The evidence is clear. Either MLB was ignoring the 60/40 rule even before the strike, or Commissioner Selig lied when he profanely insisted that future salaries had always counted against the debt limit.

The Commissioner also explained that of course stadium debt counted as "debt." He pointed out that the increased revenues from a new stadium were also factored into the other side of the equation. But he cut off my response: that valuing teams at twice their local revenues essentially forced clubs to recoup their stadium investment in two years, and that since new stadiums take several years to construct, teams would incur the debt long before the new revenues began to flow.

According to Selig, clubs had been warned for three years that the 60/40 rule would soon be enforced. While I haven't seen this reported anywhere, that doesn't mean it didn't happen. But if what Selig said was true, clubs should never have run up the debts Selig lamented during his Congressional testimony, and should have stopped signing players to long-term contracts. They didn't. Their actual behavior suggests one of four possibilities

  • the owners are incompetent businessmen
  • they misread the 60/40 rule
  • they didn't believe Selig would ever enforce the rule
  • Selig blind-sided them with a new, broader interpretation of the rule.

Draw your own conclusions.

Moving on to a new subject, Selig said that contraction wasn't his idea, but "came from the clubs." True enough--Jerry McMorris of the Rockies deserves the most "credit"--but that doesn't make it any more defensible. Indeed, although Selig invoked the conclusions and recommendations of MLB's Blue Ribbon Economic Panel at every other opportunity, he conveniently neglected to mention that his own hand-picked Panel had concluded that contraction was unnecessary.

Interestingly, even though the original vote on contraction was reported as 28-2, with the Expos and Twins opposed, Selig claimed that the owners' five votes on contraction had all been unanimous. Someone's not following the script...

Selig asserted that the Twins "fought for ten years for a new stadium," as though the uncaring locals wanted to consign the Twins to the Metrodome for eternity. The only "fight" involved billionaire owner Carl Pohlad's unwillingness to pay a larger share of the stadium's cost. He mentioned my reference to his "rigging the sale of the Boston Red Sox," but instead of denying it, said only that the locals were happy with their new ownership group. The Massachusetts Attorney General was less happy, describing the sale as a "bag job" orchestrated by MLB to keep the Sox in "friendly" hands even if other bidders offered more money.

Turning back to Congress, the Commissioner said the House committee "got everything they wanted." When I pointed out that the MLBPA had seen additional financial records which MLB refused to let it talk about, Selig responded with the non sequitur that the Congressional staff never read all of the documents it received.

Selig continued, "The media has a much better understanding now than it did three, four, five years ago." I bit my tongue. He praised the Blue Ribbon Panel report several times, proudly reiterating how so few low-payroll clubs have won playoff games.

When I suggested that the revenue-sharing formula being proposed by the owners is seriously flawed--by taxing the Expos' local revenues at the same 50% rate as the Yankees', it deters spending by the very teams revenue sharing is intended to help--Selig cut me off. "That's what the Players Association says. I don't believe that's true." That should answer any questions about the commissioner's grasp of economics.

Winding up, Selig reiterated that while he's come to accept name-calling as part of the job, I "ought to have the facts right." There were "a lot of statements here that are just wrong."

I hope this column will help readers separate truth from fiction.

Related Content:  Bud Selig,  Revenue Sharing,  60/40

0 comments have been left for this article.

<< Previous Article
Avoiding Dissonance (04/25)
Next Article >>
The Daily Prospectus: ... (04/29)

RECENTLY AT BASEBALL PROSPECTUS
Fantasy Article Fantasy Team Preview: Baltimore Orioles
Premium Article Rumor Roundup: The Ace Chase, the Rays' Face...
Premium Article Daisy Cutter: Jon Lester's New Peers
Premium Article Prospect Mechanics
Moonshot: A New View of Plate Discipline, Pa...
The Lineup Card: Nine of the Worst Baseball ...
Premium Article Transaction Analysis: Yasmany Tomas is a Dia...

MORE FROM APRIL 26, 2002
Transaction Analysis: April 23-24, 2002
Premium Article The Daily Prospectus: The Daily Prospectus: ...
Transaction Analysis: April 23-24, 2002
Friday Afternoon with Bud
The Daily Prospectus: Tick, Tock

MORE BY DOUG PAPPAS
2002-08-16 - Bridging the Gap
2002-07-10 - DuPuy Disinforms
2002-07-10 - DuPuy Disinforms
2002-04-26 - Friday Afternoon with Bud
2002-04-26 - Friday Afternoon with Bud
2002-04-03 - Prospectus Feature: The Numbers (Part Eight)...
2002-04-03 - The Numbers (Part Eight)
More...